Nam Tai Electronics, Inc.: Q1 2011 Sales up 104%, Net Income $2.0 million

SHENZHEN, China, May 9, 2011 /PRNewswire/ -- Nam Tai Electronics, Inc. ("Nam Tai" or the "Company") (NYSE Symbol: NTE) today announced its unaudited results for the first quarter ended March 31, 2011.

KEY HIGHLIGHTS

(In thousands of US Dollars, except per share data, percentages and as otherwise stated)

SUPPLEMENTARY INFORMATION (UNAUDITED) IN THE FIRST QUARTER OF 2011

1. Quarterly Sales Breakdown

(In thousands of US Dollars, except percentage information)

2. Breakdown of Net Sales by Product Segment (as a percentage of Total Net Sales)

Prior to year 2009, the Company operated in three reportable segments - telecommunication components assembly ("TCA"), consumer electronics and communication products ("CECP"), and LCD products ("LCDP"). In 2010, pursuant to merger of the Company's two PRC subsidiaries represented by LCDP and TCA segments into one Shenzhen subsidiary in 2010, the chief operating decision maker reviews the segment results of two business segments (TCA and CECP) when making decisions about allocating resources and assessing performance. The change in segment reporting was due to the following:

• Most of the LCDP business has been LCD module assembly for telecommunication products in 2010, which is similar to the business operated by TCA. In view of the similarity of the products, the Company has merged the LCDP segment into the TCA segment;
• After the merger, all the TCA business is run by one management team;
• The Company discontinued CECP production for bluetooth headsets and calculators with two major box-built customers in the fourth quarter 2010. Should the CECP segment falls below the threshold prescribed under Financial Accounting Standard Board ("FASB") Accounting Standards Codification ("ASC") 280-10-50-12, management may aggregate this segment to TCA; and
• In 2010, the Flexible Printed Circuit Board ("FPCB") business was too small to be designated as a separate business segment. In addition, FPCB is regarded as WIP ("work in progress") for internal use by the Company, i.e. it is manufactured for a more value adding process, FPC assembling.

The segment information in first quarter of 2010 has been restated in order to conform to the change in presentation of segment reporting in 2011 in accordance with FASB ASC 280-10-50-34. The results of the former LCDP segment were included in the TCA segment in first quarter of 2010.

From 2011, the Company intends to focus its business on key components assembling for telecommunication products and businesses that are stable in growth and margins, befitting the long term business strategy of the Company.

3. Key Highlights of Financial Position

OPERATIONS REVIEW

Momentum of fourth quarter 2010 carried into first quarter 2011 and the Company achieved similar sales of $161.9 million in first quarter 2011, up 104% compared with first quarter 2010. Gross profit of $8.2 million in the first quarter 2011 grew by 26% when compared with $6.5 million in the same quarter last year. However, gross profit margin in first quarter of 2011 decreased to 5.1%, down from 8.2% in the first quarter of 2010. The decrease in gross profit margin was mainly due to three reasons. First, product mix, box built products with higher gross margin such as Bluetooth headset and calculators were discontinued. Second, increased labor cost, increases in basic wages for labor since last year continue to affect margins in first quarter 2011. Third, startup costs, operating losses at the Company's facility in Wuxi completed in 2009 continued although the Wuxi site began manufacture and assembly of flexible printed circuit boards in 2010. Nevertheless, due to increased sales, the Company earned net income of $2.0 million, compared with the loss of $1.1 million for the first quarter of last year.

By the time the earthquake occurred in Japan on March 11, 2011, the Company had received most materials required to support March sales. So the impact of the earthquake disaster on first quarter sales revenue was small.

EXPANSION PROJECTS

Currently, the Company has two separate projects planned for expansion, both of which depend upon prompt action and cooperation of local PRC government.

Following the report in the fourth quarter 2010, the raw land in Guangming Hi-Tech Industrial Park, Shenzhen, PRC, approximately 30 minutes driving distance from its existing facilities in Gushu, Shenzhen and approximately one hour driving distance from Hong Kong, has not yet been delivered to the Company. The local Government has not indicated when the land will be released. The Company continues to pursue.

The Company's second expansion project involves acquisition of land use rights for approximately 500,000 square feet of raw land adjacent to the Company's operational manufacturing facility in Wuxi in order to construct structures, such as dormitories, canteen, labor activity center, research laboratory, and testing and training centers, to support operations at the Wuxi manufacturing facility. The local Wuxi government has indicated that it strongly supports the Company's planned expansion and development.

COMPANY OUTLOOK

The Japanese earthquake is expected to affect performance of the Company in 2011. The Company produces mainly LCD modules and telecommunications subassemblies for Japanese multi-national corporations (MNCs). Key components are manufactured in Japan, and shortages of those components could unfavorably impact revenues in the coming quarters. Most recent inputs from key component suppliers suggest an impact of up to 20% of the Company's performance. The situation remains unstable and the extent of the damage to the supply chain is still unclear. The Company is working with suppliers and customers to qualify alternate materials and sourcing to stabilize the situation and to reduce exposure to component shortages in a long term. It is anticipated the situation will be clearer towards the end of second quarter (end of June 2011) or earlier.  The Company will release updates on this situation as additional information becomes available.

Although the earthquake in Japan has impacted some electronic materials and component supplies, long term global demand has generally not decreased. The Company continues to expand manufacturing capacity significantly to meet growing demand for LCD modules for applications in market segments of telecommunications, such as smart phones and tablets. The Company is also actively pursuing new product segments within core capabilities, and developing new customer bases outside of Japan.

With increasing inflation and appreciation of the PRC renminbi, the Company anticipates growing labor cost pressure on margins. The Company will focus on controlling cost to sustain the profitability while also investing in new technology to improve efficiencies and capabilities to make state of the art products.  

PAYMENT OF QUARTERLY DIVIDENDS FOR 2011

As announced on November 1, 2010, the Company resumed payment of quarterly dividends in 2011. The following table repeats and updates the previously announced schedule for declaration and payment of quarterly dividends in 2011.

The Company's resumption of dividend payments for 2011 does not necessarily mean that dividend payments will continue thereafter. Whether future dividends will be declared will depend upon the Company's future growth and earnings, of which there can be no assurance, and the Company's cash flow needs for future expansion. Accordingly, there can be no assurance that cash dividends on the Company's common shares will be declared beyond those declared for 2011, what the amounts of such dividends will be or whether such dividends, once declared for a specific period will continue for any future period, or at all.

ANNUAL GENERAL MEETING

The Company's 2011 Annual General Meeting has been scheduled to be held at 11:30 a.m. (Pacific Daylight Time) on Friday, June 10, 2011 at the following venue:

The Library, Mandarin Oriental Hotel
222 Sansome Street, San Francisco,
California 94104, USA

The record date for determining shareholders entitled to vote at its 2011 annual meeting was April 28, 2011 and that proxy materials will be released to shareholders on or about May 10, 2011.

PROPOSED SCHEDULE OF RELEASE OF QUARTERLY FINANCIAL RESULTS FOR Q2 to Q4 2011

FORWARD-LOOKING STATEMENTS AND FACTORS THAT COULD CAUSE OUR SHARE PRICE TO DECLINE

Express or implied statements in this press release, such as the statements included in "Expansion Projects" and "Company Outlook," particularly management's intention to focus its business on key components assembly for telecommunication products and expectations expressed regarding the action and cooperation of the local PRC government as to our expansion projects in Shenzhen and Wuxi; assessment of the impact of the Japanese earthquake on the performance of the Company in 2011, in particular the damage to the supply chain and impact on the supply of key components along with expectations as to when that situation will become more clear and long term global demand despite the earthquake;  expansion of manufacturing capacity to meet growing demand for LCD modules; development of new product segments and new customer bases; perception of increasing inflation and appreciation of PRC renminbi;, and the Company's ability to control costs and to invest in new technology are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in these forward-looking statements as a result of a number of factors, including deterioration of the markets for the Company's customers' products and the global economy as a whole, which could negatively impact the Company's revenue and the ability of the Company's customers to pay for the Company's products; customer bankruptcy filings; the sufficiency of the Company's cash position and other sources of liquidity to operate its business; competition negatively impacting the Company's revenues and margins; and one or more of the factors discussed in "Item 3. Key Information — Risk Factors" in the Company's Annual Report on Form 20-F for the year ended December 31, 2010 as filed on March 16, 2011 with the Securities and Exchange Commission.

For further information regarding risks and uncertainties associated with Nam Tai's business, operating results or financial condition, please refer to the "Operating and Financial Review and Prospects," "Management's Discussion and Analysis of Results of Operations and Financial Condition" and "Risk Factors" sections of Nam Tai's SEC filings, including, but not limited to, its annual reports on Form 20-F and Reports on Form 6-K containing releases of Nam Tai's quarterly financial results, copies of which may be obtained from Nam Tai's website at http://www.namtai.com or from the SEC's EDGAR website at http://www.sec.gov.

All information in this press release is as of May 9, 2011 in Shenzhen of the People's Republic of China except as otherwise indicated. Nam Tai does not undertake any duty, and should not be expected, to update any forward-looking statement to conform the statement to actual results or changes in Nam Tai's expectations, unless so required by law.

ABOUT NAM TAI ELECTRONICS, INC.

We are an electronics manufacturing and design services provider to a select group of the world's leading OEMs of telecommunications, consumer electronic, medical and automotive products. Through our electronics manufacturing services operations, we manufacture electronic components and subassemblies, including LCD panels, LCD modules, FPC subassemblies and image-sensor modules and PCBAs for headsets containing Bluetooth® wireless technology.(1)  These components are used in numerous electronic products, including mobile phones, laptop computers, digital cameras, electronic toys, handheld video game devices, and entertainment devices. We also manufacture finished products, including mobile phone accessories, home entertainment products and educational products. We assist our OEM customers in the design and development of their products and furnish full turnkey manufacturing services that utilize advanced manufacturing processes and production technologies.

(1) The Bluetooth® word mark and logos are owned by the Bluetooth SIG, Inc. and any use of such marks by Nam Tai is under license.

www.namtai.com

SOURCE Nam Tai Electronics, Inc.

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